Encana (ECA) Highlighted As Weak On High Volume

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer.

Trade-Ideas LLC identified Encana ( ECA) as a weak on high relative volume candidate. In addition to specific proprietary factors, Trade-Ideas identified Encana as such a stock due to the following factors:

  • ECA has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $117.4 million.
  • ECA has traded 1.3 million shares today.
  • ECA is trading at 2.10 times the normal volume for the stock at this time of day.
  • ECA is trading at a new low 3.03% below yesterday's close.

'Weak on High Relative Volume' stocks are worth watching because major volume moves tend to indicate underlying activity such as material stock news, analyst downgrades, insider selling, selling from 'superinvestors,' or that hedge funds and traders are piling out of a stock ahead of a catalyst. Regardless of the impetus behind the price and volume action, when a stock moves with strength and volume it can indicate the start of a new trend on which early investors can capitalize (or avoid losses by trimming weak positions). In the event of a well-timed trading opportunity, combining technical indicators with fundamental trends and a disciplined trading methodology should help you take the first steps towards investment success.

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More details on ECA:

Encana Corporation, together with its subsidiaries, engages in the development, exploration, production, and marketing of natural gas, oil, and natural gas liquids in Canada and the United States. The stock currently has a dividend yield of 2%. ECA has a PE ratio of 3. Currently there are 11 analysts that rate Encana a buy, no analysts rate it a sell, and 11 rate it a hold.

The average volume for Encana has been 8.5 million shares per day over the past 30 days. Encana has a market cap of $10.3 billion and is part of the basic materials sector and energy industry. Shares are unchanged year-to-date as of the close of trading on Tuesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Encana as a hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth, compelling growth in net income and notable return on equity. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself and weak operating cash flow.

Highlights from the ratings report include:
  • ECA's very impressive revenue growth greatly exceeded the industry average of 37.8%. Since the same quarter one year prior, revenues leaped by 58.4%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. When compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, ENCANA CORP's return on equity exceeds that of the industry average and significantly exceeds that of the S&P 500.
  • The debt-to-equity ratio is somewhat low, currently at 0.81, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.86 is somewhat weak and could be cause for future problems.
  • ECA's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 41.88%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.
  • Net operating cash flow has decreased to $261.00 million or 43.50% when compared to the same quarter last year. Despite a decrease in cash flow of 43.50%, ENCANA CORP is in line with the industry average cash flow growth rate of -51.31%.

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